Agribusiness Tax Savings – Hire Your Spouse!
Jul 02, 2015
In small family farm operations it is common for spouses to provide a variety services such as bookkeeping, payroll, providing meals for workers, feeding livestock, moving workers from field to field, and even taking grain to the elevator. If your spouse does any of these and more for the family farm, it may be tax advantageous for your to pay them a fair wage. These wages can either be paid as cash wages or commodities.
Cash wages are subject to Social Security and Medicare taxes in addition to any federal and state withholdings. Commodities are not subject to Social Security or Medicare taxes and are also not subject to the federal income tax withholding rules.
If you feel commodity wages are the route you wish to take, you must make sure the following:
- payment is for agricultural labor
- the employee exercises control of the commodity,
- the payment is not equivalent to cash
- the employer puts the fair market value of the commodity (at the time of transfer) in box 1 of the W-2. If there is any gain or loss when it comes time for the employee to sell the commodity, they will record the gain or loss as a short-term gain or loss on Schedule D of their tax return.
If you feel that cash wages are the way to go, know they can be used to calculate the Domestic Production Activities Deduction.
Farmers who are subject to self-employment tax have the ability to deduct their health insurance before Adjusted Gross Income is calculated. While this is a great deduction, it does not help the farmer save on any of their self-employment tax liability. If the farmer employs his or her spouse, they have the ability to pay family coverage in the spouses name and deduct it through the business. Be careful as this will be disallowed if the spouse works for another employer that provides subsidized health insurance.
Talk to your farm tax advisor to see which option is most tax advantageous for you.
By Ella Herr, Staff Accountant
Categories: Agribusiness
When Did You Last Change Your Allocation Rate?
Jul 01, 2015
How often do you change your overhead allocation rate? Has it been the same since 1972? Did you just change it last month?
Typically you should review and change your overhead allocation rate every year. If you still have the allocation you had in 1972 you really need to review it. Chances are your driver and your rates are incorrect.
If you are changing your allocation every month, it is probably too frequent. Unless there is a material change that occurs that makes your allocation at least 10% in error it does not need to be updated, it will be accounted for in your variance calculations.
It is important to review your allocation base and rate to make sure that it is accurately reflecting your current operations. If it is not, then it must be revised or you cannot be confident that you are fully recovering your costs.
When was the last time you reviewed your allocation base and rate?
Categories: Cost Accounting
The Importance Of An Updated Cost System
Jun 29, 2015
We have been working on an assignment with a manufacturing client to revise their entire costing system. In this particular case, there are numerous problems with the system both in original design and construction. In addition, subsequent problems have developed with regard to reporting and maintaining the system month-to-month. The original costing system was designed utilizing estimates to provide a basis for the start-up of operations. This is not the problem. In fact, we have recommended repeatedly in the past that system start-ups require estimates which can be modified at a later date.
In this case, the cost manager was well aware that set-up times and job changes were originally estimated based on the production managers knowledge at the time and were never changed as operations continued. By the time we arrived, the original production manager was gone and a new production manager was in place. The new production manager knew that the standards were grossly in error but was unsure as to how to correct the problem. The cost manager was knowledgeable about the issues but was fighting so many fires simultaneously related to this cost system, that she was unable to effectively deal with these estimated standards for job changes and set-up times.
This company frequently changed over operations from one product type to the other and the job change calculations were material to the overall cost of the product. Originally, the system was never set-up to monitor and report on different standards compared to actuals on a job change. However, it became painfully obvious to the entire management team that material differences between estimated job changes and actual job changes were present. The product being manufactured was a large bulky product so the ability to simply increase run lengths and attempt to manage the excess set up time was not viable. This was true, especially because it would have taken such a large amount of warehouse space which was not available to store all the excess product.
Issues with inaccurate standards seem to be common place in the costing business and generally not a problem if the company has a way to monitor and then identify those standards. Those which are in error must be constantly reviewed, upgraded and changed as necessary to meet current conditions. A fully functioning and accurate cost system is frequently in need of attention as work processes change and standards become more refined with longer and longer history. The goal should be to always accurately cost the product so changes in operations or work processes, including the speed of the process, is currently reflected in the cost system. This particular system made no allowance to monitor job change or set-up times and, therefore, the facts necessary to make the changes were not readily available.
With relevant information presented in an accurate format, the changes necessary to keep a cost system functioning will be readily available. Frequent review by those the managers responsible for maintaining and upgrading the cost system will ensure a solid system, one that can be used to make better business decisions.
Categories: Cost Accounting
EMV Credit Card Liability Shift
Jun 29, 2015
Over half of the world’s credit card fraud occurs within the United States where magnetic stripe credit card technology remains standard. Outside the U.S., EMV technology has significantly reduced counterfeit fraud levels and has become the model of the future.
EMV, or Europay, MasterCard and Visa, is the global standard for cards equipped with computer chips and the technology used to authenticate chip-card transactions. A small, “smart” microprocessor computer chip embedded in the card makes it nearly impossible to counterfeit. Unlike current payment terminals which require customers to ”swipe” their card, EMV technology involves the insertion of the card into a processor so the chip can be read and customer data received.
The EMV shift has finally arrived in the United States! October 15, 2015 marks the deadline for compliance required for both merchants and card issuers. Merchants must obtain new devices to read customer’s card. In addition, the card issuer will issue new cards with embedded chips. Currently, if a merchant processes a fraudulent card, the card issuer absorbs the cost. However, as of October 15, if someone pays with a fraudulent chip card and a merchant has failed to upgrade to an EMV reader, the liability falls on the merchant, hence the term “liability shift.”
There are multiple ways in which an EMV payment system will take payments. It is recommended that merchants review their existing POS equipment or systems to learn if upgrades are possible or whether new EMV-compatible POS hardware must be purchased. Merchants should take into consideration their business setting when determining what equipment is best (contact, contactless, etc.). It is suggested that merchants contact their current processors and ask about potential equipment upgrades. EMV-compatible terminals have been on the industry’s radar for a while now, and it is very likely that most processors have an offering that will work with the merchant.
So why the change?
It is estimated that credit card fraud costs card issuers over $8 billion a year. In the wake of numerous large-scale data breaches and increasing rates of counterfeit card fraud, U.S. card issuers are migrating to this new technology to protect consumers and reduce the costs of fraud. Most of the world, including Europe, has been using chip cards for years. The United States is actually the last major market still using magnetic-stripe-only cards.
If you haven’t considered making the upgrade to EMV, now is the time to start thinking about making the change. Discuss the upcoming liability shift with your POS provider to ensure you’re ahead of the game. Although upgrading to an EMV system may seem costly now, the cost of a security breach will be much, much higher.
By: Jessica Sloan, Marketing Manager
Categories: Other Resources
Do You Own An Interest In A Foreign Business?
Jun 25, 2015
Every five years the U.S. Department of Commerce, by way of the Bureau of Economic Analysis (BEA), requires individuals, estates, trusts, or businesses who own more than a 10% interest in a foreign company to complete a survey on Forms BE-10. The entity owning a foreign business is required to file at least two forms, one based on their own data, and one based on the data of each foreign company they own. The last such survey was conducted based on 2009 data, which means the BEA is now requesting the survey to be completed based on 2014 information.
In the past, this survey was a backburner item for most, as it was only required to be completed if the BEA specifically contacted an entity, requesting them to complete the forms. This meant that the majority of entities were able to get by without ever actually completing the survey. However, this all changed in November of 2014 when the BEA announced it was broadening its scope of those required to complete the forms. As a result of this modification, the BEA is now requiring the completion of the forms by any entity who, at any point during a given year, owned 10% or more of a foreign company, regardless of whether or not they were actually contacted by the BEA.
This is an extremely significant change since it is likely that most entities subject to this requirement are not aware that these forms even exist. In addition, failing to complete the survey could result in some fairly large fines, including civil penalties starting at $2,500 and capping at $25,000, and criminal penalties of up to $10,000. Also, if the entity required to file is an individual, and they fail to do so, they may be subject to imprisonment for up to one year. These hefty fines and penalties mean that it is important for entities to know if they may be subject to the reporting, and to make sure they complete the reporting on time.
As previously stated, the general requirement is that the forms should be completed by any individual, estate, trust, or business, who at any time during 2014 owns a 10% or greater interest in a foreign company. It is important to note that this ownership interest includes both direct and indirect ownership. Indirect ownership means that if an entity owns an interest in a business, and that business in turn owns a greater than 10% interest in a foreign business, the first entity may be required to complete the forms, since they may indirectly own more than 10% of the foreign company. With that being said, there are some exceptions to this general requirement, which means it is important to consult with your WVCO advisor as to whether or not your specific situation falls under the requirement umbrella.
Probably the most important item to keep in mind is the due date of the forms. Depending on how many forms an entity is required to file, the due date may differ. For 2014 data, the due date for entities filing less than 50 forms was May 29, 2015, and the due date for entities filing more than 50 forms had been pushed back from its original June 30, 2015 deadline. The BEA may grant extensions until July 31 or August 31, 2015, and are to be considered granted otherwise unless the BEA contacts you. With this deadline fast approaching, please feel free to give our office a call so we can aid in determining your status, and assist in getting the required forms submitted on time.
By: Ruben Becerra, Staff Accountant
Categories: Other Resources